Month: February 2011
LMIR – OCBC
FY10 results mostly in line; Maintain BUY
4Q DPU of 1.11 S-cents. LMIR Trust (LMIR) reported 4Q10 gross revenue of S$19.3m, up 41.6% YoY but down 4.7% QoQ. Distributable income however dropped 3.3% YoY but rose 2.5% QoQ to S$12.1m. For FY10, gross revenue jumped 50.9% to S$129.4m, which was in line with our projection of S$130m and market expectation of S$131m (based on consensus estimate from Bloomberg). Distributable income, however, slipped 11.4% to S$47.8m, partly due to higher operating expenses subsequent to the expiry of the Operating Costs Agreements with third party operators (Opcos) on 31 Dec 2009. Previously, Opcos were given rights to the service charges receipt and utilities cost recovery from tenants, whilst responsible for the costs directly related to the maintenance and operation of seven malls. The operating costs have since been passed on directly to the REIT in FY10. 4Q DPU is 1.11 S-cents (also in line with our forecast of 1.15 S-cents), representing an annualized yield of 8.16%, based on yesterday’s closing price of S$0.54. This was 4.1% lower than the 1.16 S-cents paid out in 4Q09.
Portfolio Performance. Overall portfolio occupancy increases 1.4 pp YoY to 98.3%; this compares well against Jakarta’s average occupancy rate of 86.3%. LMIR also benefited from positive rental reversion with renewed leases contracted at 10% higher on average than the ones that have expired during the year. LMIR continues to have a well-diversified portfolio, with no particular trade sector accounting for more than 17% of total net leasable area (NLA), and no single property accounting for more than 18% of total net property income (NPI). We also noted that LMIR’s gearing ratio of 10.3% is relatively low, compared to other retail REITs. This places it in a favorable position to use debt financing to embark on inorganic growth in FY2011. On the organic-growth front, we also understand that LMIR is exploring asset enhancement opportunities at some of its existing malls.
Positive Outlook. Management guided that the Indonesian economy is projected to remain buoyant1 , which will benefit the retail industry. Retail leasing has started to pick up in 3Q10, with a large number of leases recorded and several notable deals witnessed in newly completed projects. Foreign major retailers were also increasingly active in the market, with expansion plans in response to market opportunities. Furthermore, as new supply is expected to grow moderately in 2011, nationwide vacancy is anticipated to stabilize at around 13.3% by end of 2011. Such a trend helps the market to maintain stable occupancy and record good rental reversions going forward. Our investment thesis for LMIR remains intact, supported by Indonesia’s growth story and LMIR’s quality assets. Maintain BUY with an unchanged fair value of S$0.592.
1 The World Bank has forecasted Indonesia’s GDP to grow at 6.2% and 6.3% in 2011 and 2012 respectively. IMF has also projected Indonesia’s GDP growth at 6.2% and 6.5% in 2011 and 2012 respectively.
2 Key risks to our rating include reversal of recovery trends for the Indonesian economy, forex risk and deterioration in credit and capital markets.
CMT – BT
CapitaMall Trust offers $200m of retail bonds
Interest payment of 2% per annum for 2-year bonds
CAPITAMALL Trust (CMT) is offering up to $200 million in retail bonds, as part of a $2.5 billion retail bond programme announced yesterday.
The $200 million bond issue will consist of a $50 million public tranche, which will be made available by way of electronic application, and a $150 million placement tranche for institutional and other investors.
Both tranches open for applications at 9am today and will be closed at noon on Feb 23. The public can apply through the ATMs of DBS Bank, POSB, OCBC Bank and UOB Bank and its subsidiary Far Eastern Bank, and through DBS Bank’s Internet banking website.
The minimum investment amount is $2,000 for subscriptions under the public offer, with incremental multiples of $1,000.
The issue price of the 2 per cent bonds, due 2013, will be $1 per $1 in principal amount, ie. 100 per cent of the principal amount of the bonds.
CMT, whose portfolio includes Tampines Mall, Funan DigitaLife Mall, Bugis Junction, Rivervale Mall and Plaza Singapura, estimates the net proceeds of the bond issue at $197.9 million, which it says it will use to partially refinance its existing borrowings, fund its investments, on-lend to any trust, fund or entity in which it has an interest, finance asset-enhancement works and for general corporate and working capital purposes.
CMT said its manager has the right to cancel the offer if it receives less than $50 million in applications. In the event that the offer is oversubscribed, CapitaMall Trust Management (CMTM) has the option of increasing the issue size up to a maximum of $300 million – in which case, there will be $75 million for the public tranche and $225 million for the placement.
The bonds are expected to be listed on the Singapore Exchange (SGX) on or about Feb 28. Each board lot will be made up of $1,000 in principal amount of bonds.
CMT said it received in-principle approval from SGX for the listing and quotation of the bonds on Feb 10.
DBS Bank is the sole bookrunner and lead manager for the offer.
As for its $2.5 billion retail bond programme, CMT said the bonds under the programme will be issued from time to time by HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of CMT. DBS Bank is the arranger and dealer of the programme.
The bonds may be issued in series or tranches in Singapore dollars, US dollars, Australian dollars, Canadian dollars, euros, Hong Kong dollars, Japanese yen or in other currencies agreed between CMTM and the relevant dealer of the bonds. The bonds may be fixed-rate, floating-rate, hybrid or zero coupon bonds.
CMT units closed trading unchanged at $1.83 yesterday.
CitySpring – DBSV
Robust capital plan remains top priority
At a Glance
• 3Q11 DPU maintained at 1.05Scts; no surprises
• Receives temporary respite from S&P with respect to credit rating of Basslink bonds
• Catalysts only possible after management reviews capital structure; maintain HOLD with DDM-based TP of S$0.58
Comment on Results
Cash earnings down q-o-q. Revenues were up 12% y-o-y and 3% q-o-q to S$107m on the back of higher tariffs at CityGas and a stronger AUD. Cash earnings, while up 67% y-o-y owing due to better margins at CityGas, was down almost 20% q-o-q to about S$18m as Basslink cash earnings disappointed. Basslink again saw negative CRSM (risk sharing mechanism) payments to the tune of A$5.2m, which affected results. The Group paid out 1.05Scts for the quarter, in line with the guided 4.2Scts for FY11. About 56% of net cash generated was distributed in 3Q11, and gross cash buffer improved to S$123m.
Outlook and Recommendation
Bond rating concern diminishes in near term. To recap, S&P had put the senior secured debt issues at Basslink on CreditWatch negative. If the ratings on the outstanding bonds are downgraded, Basslink will be barred from repatriating distributions to CitySpring. Recently, the Trustee-Manager put A$20m in an escrow account to meet S&P criteria and subsequently, Basslink has been removed from the CreditWatch list and its BBB- rating affirmed (with a negative outlook). Thus near term concerns have been alleviated but the Trustee-Manager will still have to review the capital structure of the Group by September 2011 to ensure stable dividends from Basslink. In view of this uncertainty and the continued dispute with Hydro Tasmania regarding the interpretation of CRSM dues to the tune of A$6.9m – which could culminate in litigation – we maintain our HOLD call on the stock at an unchanged TP of S$0.58. The Trust will also have to refinance S$142m of corporate loan due in August 2011. Acquisition catalysts are unlikely in the near term given the management focus on putting in place a “robust” capital plan at the earliest.
Rickmers – BT
Rickmers raises Q4 DPU by 5%
RICKMERS Maritime raised its distribution per unit (DPU) for its fourth quarter ended Dec 31, 2010 by 5 per cent, from 0.57 US cents to 0.6 US cents.
Increased for the first time in four quarters, the DPU represents a payout of 14 per cent of income available for distribution. The trust posted a 31 per cent rise in net profit for the quarter, from US$15.3 million to US$19.9 million.
The jump in profit was driven primarily by a US$7.3 million writeback in impairment charges on one of its vessels – Kaethe C. Rickmers – because the vessel’s charterer is extending the charter period for another 12 months at a higher daily rate of US$23,888, compared with its current rate of US$8,288.
The new rate will kick in from March 25, restoring the revenue of the trust’s portfolio to ‘pre-crisis levels’, according to Thomas Preben Hansen, chief executive officer of Rickmers Trust Management Pte Ltd (RTM).
Its income available for distribution for the quarter rose 2 per cent, to US$18.09 million while revenue dipped 4 per cent, from US$38.1 million to US$36.8 million, for the quarter. For the full year, the trust posted a net loss of US$28.6 million, against a net profit of US$40.7 million from a year ago.
It owed the hit to its bottom line largely to a one-time US$64 million compensation payment in Q3 for cancelling its order of seven vessels in the throes of the financial crisis. Its revenue stayed flat, inching up one per cent to US$147 million, weighed down by lower income contribution from Kaethe C. Rickmers, after it was re-delivered to the trust from Maersk early last year.
For the full year, income available for distribution shrank 5 per cent to US$72.13 million while its DPU dropped 41 per cent, from 3.91 US cents to 2.31 US cents. It repaid a total of US$105 million in bank debt in FY 2010 and has US$671 million in bank debt outstanding, as at the end of last year.
The trust posted a fleet utilisation rate of 99.93 per cent for the quarter and 99.88 per cent for the full year. According to Mr Hansen, the trust has no immediate plans to expand its fleet of 16 containerships or to diversify into other types of vessels.
‘We will be over time evaluating the various transactions in the market, but for the time being, ship values have increased a lot and there will be more increases to come. We will focus on our balance sheet,’ he said yesterday.
From today, Gerard Low Shao Khangwill take over from Quah Ban Huat as RTM’s chief financial officer. Mr Quah had tendered his resignation in October last year, in order to ‘pursue other interests’.
Cambridge – Phillip
Full Year 2010 Results
•Full year revenue of $74.2 million, net property income of $65.1 million, distributable income of $44.7 million.
•4Q10 DPU of 1.193 cents, bringing full year DPU to 4.892 cents.
•Buy for attractive yield of 9.4%, maintain target price of $0.61
Results slightly better than forecast
Results came in slightly better than our forecast. Revenue and DPU came in 2.3% and 4.8% higher than our forecasts respectively. However growth was flat on a y-y basis. Full year revenue was $74.2 million (-0.3% y-y), net property income was $65.1 million (flat y-y) and distributable income was $44.7 million (+1.1% y-y). Full year DPU was 4.892 cents (-8.7% yy). The flat to slight y-y drop was mainly attributed to the loss of revenue from the divested assets. During the year, Cambridge sold $68.1 million worth of assets. On the other hand, the decline was mitigated through addition of $70.8 million of properties Cambridge purchased. DPU dropped mainly due to larger unit base arising from two rounds of private placement to raised $$90.4 million with the issuance of 178 million units.
Quarterly results review
Revenue was affected in FY10 due to the gradual divestment of assets. However revenue rebounded in 4Q10 from the contribution of the acquisitions. Quarterly DPU displayed a corresponding trend. DPU was also affected due to the larger unit base arising from the private placement.
Portfolio update
Property portfolio value stands at $928.5 million as at 31 Dec 2010. This follows a $48.2 million upward yearly revaluation of the portfolio, consisting of 43 properties. Cambridge still has $22 million of assets earmark for divestment. Gearing is 34.7% with total debt of $339.2 million and will reduce to 33.4% as the manager has committed to pay down $20 million on 17 Feb 2011.
On a separate note, 3 properties are affected in varying degrees due to the construction of the Tuas West MRT extension and will be repossessed by the Singapore Land Authorities by 2013. We estimate the pro-rated valuation of the affected land area is $54.5 million.
Conclusion
Results came in within our expectations. We had noted the impact of lower DPU due to loss of income from divested assets as well as dilution from a larger unit base in our previous reports. Cambridge is almost done with the divestment program. The REIT should begin accretion from 2011 given that management had outlined their expansion strategy. We felt the compulsory land acquisition came as a derailment to the strategy as we do not think the 3 properties are part of the intended divestment assets. Nevertheless we are forecasting this year DPU to be 4.864 cents which translate to an attractive 9.4% dividend yield. We are maintaining our target price of $0.61, but upgrading our recommendation to buy in view of the high yield.